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Colonial Properties Trust (NYSE:CLP)

Q4 2011 Earnings Call

January 26, 2012 2:00 PM ET

Executives

Jerry Brewer – EVP, Finance

Tom Lowder – Chairman and CEO

Reynolds Thompson – President and CFO

Paul Earle – COO

Analysts

Nick Joseph – Citi

Derek Bower – UBS

Alexander Goldfarb – Sandler O’Neill

Michael Salinsky – RBC Capital Markets

Andrew McCulloch – Green Street Advisors

Richard Anderson – BMO Capital Markets

Taylor Schimkat – KBW

Michael Aryan – Sun Life Financial

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Colonial Properties Trust Fourth Quarter 2011 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, January 26, 2012.

I would now like to turn the conference over to Jerry Brewer, Executive Vice President of Finance with Colonial Properties Trust. Please go ahead, sir.

Jerry Brewer

Thank you, Lyann, and welcome to everyone joining us today. We released our earnings this morning via Business Wire. A copy of this earnings release may be found on our website. We’re also webcasting this call for your convenience. A replay will be available for your convenience on our website after the call.

Tom Lowder, our Chairman and Chief Executive Officer and Reynolds Thompson, President and Chief Financial Officer will lead today’s call. On the call, they will discuss our business developments, financial results for the fourth quarter and our guidance for 2012. After their comments, we’ll open up the call to take your questions. Paul Earle, our Chief Operating Officer, is also here to field the questions.

Let me remind you that much of the information we discuss on this call, including answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall under the Safe Harbor provisions of the securities law. These estimates are also based on a number of assumptions, any of which, unrealized, could adversely affect your accuracy. Please see our latest SEC filings for the detail and explanation of risk. Any non-GAAP financial measures we discuss are reconciled to the closest GAAP measures and filings that can be found on our website.

I’ll now turn the call over to Tom.

Tom Lowder

Thank you, Jerry, and welcome everyone joining us as I’ve discussed throughout 2011, three CEO-focused directives have been to grow the company, improve operations and achieve our balance sheet targets. We’ve significant progress on each of these directives and we’ll continue to build on these directives into this year. Three years ago, we laid out a business plan and are characterized in three phases, reduction, restructuring, renewal. We’ll now include the third year of this business plan and we are well into the renewal of growth phase.

In 2011, we achieved 7.3% same-store NOI growth, which is the best annualized percentage growth ever. And we were able to provide a strong total return of 19% to our shareholders. Recognition of this growth and our continued positive outlook, our Board has increased our common dividend 20% to $0.18 per quarter. We clearly have moment in our multifamily business. The 6.9% quarter-over-quarter growth in same property net operating income was a strong number with good rental rate growth, strong occupancy and exceptional expense controls. Our same property operating margin for the quarter improved 80 basis points over the prior year on historically low turnover and continued management of our turnover costs.

As I’ll discuss when we get to guidance, we expect all of these trends to continue in 2012 where the number of positive demand trends coming together for one of the better operating climates in this business recent memory. We’ve had a lot of success in improving our portfolio by pruning older multi-family properties as well as several commercial assets in exchange for much younger and faster growing assets in top quartile Sunbelt markets. We completed several asset recycling transactions in the quarter that Reynolds will discuss in a moment. And we expect there will be more of those this year. Our ultimate goal is to achieve a mix of at least 90% net operating income from our multifamily portfolio. We have a pipeline to get there and we will continue executing on that strategy.

Finally, in 2012, we are optimistic that we will achieve our investment grade rating. The amount of work we’ve done on the balance sheet is not gone unnoticed by the way (inaudible) season. We believe we’re close to justifying that rating. We believe we made a strong case and we’ll continue to fund our growth to leverage neutral transactions like the ones executed in the fourth quarter and to-date in the first quarter.

Now Reynolds will provide more details on our operating performance and activity during the quarter and I will conclude the call with our guidance for 2012. Reynolds?

Reynolds Thompson

Thank you, Tom. FFO for the fourth quarter was $0.28 per share. Multifamily same property net operating income increased 6.9% and revenue increased 5.5% compared to the fourth quarter of 2010. Our strongest fourth quarter revenue markets were Austin, Charlotte, Phoenix, Charleston, Rowley and Orlando.

Multifamily same property physical occupancy was 95.9% at the end of the fourth quarter. Same property NOI increased 7.3% for the year, which represents a record same-store number for the company. Revenues increased 4.4% and expenses increased 0.6%. Austin, Charlotte, Phoenix, Dallas, Fort Worth, Rowley and Savanna all achieved NOI growth of at least 8%.

Phoenix, Austin, Charleston, Charlotte and Rowley all had revenue growth of 5% or greater. The average rental rate reached $760 per unit during the fourth quarter, which was up 1.5% from the third quarter and 5.7% from the fourth quarter of 2010. In place rents are approximately 6% below the market. Rent as a percentage of income was 15.1% as of the fourth quarter, 500 basis points below our prior peak of approximately 20% in 2008, which also indicates a strong resident profile.

New lease rates were up 0.7% for the quarter, reflecting typical seasonal trends on new leases. Renewal rates were up 7.2% for the quarter, continuing the strong trends posted in the third quarter. January has gotten off to good start as well with renewals up 6.9% to-date. We expect new lease rates to improve as we move toward the spring leasing season.

Our current occupancy of 95.9% gives us confidence that our growth in the spring rental rates will be similar to last year. Additionally, our fourth quarter traffic was up 10.5% and is up 15.5% month-to-date in January. Resident turnover was 60%, which is flat compared to the prior year, move-outs to the home purchases were 14.5% for the quarter, up 120 basis points over last year and 130 basis points sequentially. These levels are below our long-term average of 15% to 17%. Move-outs to home rentals were 3.3% for the quarter, up 70 basis points over last year and down 70 basis points sequentially.

During the quarter, there were two one-time items. We recognized a charge of $3.3 million related to ongoing litigation concerning a legacy for sale project and the second item was $1.2 million gain as a result of our repurchase of the remaining $50 million Series B preferred unites at a 5% discount. Excluding the two one-time items, FFO for the quarter would have been $0.30 per share.

We continue to work toward our 90/10 multifamily/commercial portfolio mix. We acquired Colonial Grand at Hebron at 312 Unit Class A apartment community in Dallas for $34.1 million. We funded the purchase with $23.9 million in proceeds from our sale of Colonial Center Town Park 400 office building in Orlando and borrowings on our unsecured credit facility.

We also completed the sale of our retail center, Colonial Pinnacle Turkey Creek in Knoxville for a total consideration of $131.7 million. Our 50% interest in this property yielded total consideration of 27.2 million in cash and the assumption and repayment of our $38.7 million of share of the loans secured by the property. Proceeds were used to repay borrowings under our unsecured credit facility and to fund multifamily acquisitions. We also sold our remaining 5% interest in the Colonial Promenade Alabaster II shopping center for $2.4 million.

Earlier this month, we acquired the 350 unit Colonial Grand at Brier Creek in Rowley for $45 million. The property is approximately three years old and located in one of Rowley’s premier master plan communities. We funded the acquisition with proceeds from our dispositions and borrowings on our unsecured credit facility.

As of year-end, our current development pipeline consisted of three apartment communities under construction totaling 1104 units and a total investment of $120 million. We have begun construction of a new apartment community in Charlotte this quarter as well. Leverage at quarter end was 45.5% of debt plus preferred to gross assets compared with 49.5% a year ago.

Fixed charge ratio was 2.1 times at quarter end. We have our credit facility in approximately $80 million of debt, maturing in 2012. We’re in early stages of renegotiating our unsecured credit facility and intend to have that process completed by the end of the first quarter.

I’ll turn the call back over to Tom.

Tom Lowder

Thanks, Reynolds. Our full year 2012 FFO guidance is $1.23 to $1.29 per share. Our estimates include a full year multi-family same property NOI increase of 5.5% to 7.5%, with revenues expected to increase in a range of 4.25% to 5.75%. Our same property expense range is expected to increase 2.5% to 3.5%.

Corporate G&A expenses are anticipated to between $23 million and $24 million. Development spending is anticipated to be between $125 million and $150 million. For acquisitions we estimate between $100 and $150 million. Our dispositions are expected to be $100 million to $150 million. The timing of all these transactions will, of course, affect our annual FFO number.

We are expecting the momentum we gained in 2011 to carry on into this year. As such, on directives for 2012 are not too dissimilar from the 2011 directives. They are to grow the company, achieve investment grade rating and improve our portfolio. The demographic tailwinds and the favorable supply/demand dynamics we’re experiencing are expected to continue this year, which should allow us to post strong operating performance.

Our expectation is that job growth will continue to slowly improve and the home ownership rate will stay the last. There is much discussion around new development, but we do not expect any meaningful supply to be completed until 2013 and 2014.

Operator, we’d like to open the call up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) One moment please for the first question. The first question comes from the line of Eric Wolfe from Citi. Please proceed with your question.

Nick Joseph – Citi

Hey, guys. It’s actually Nick Joseph here with Eric and Michael. I was wondering, could you give us a sense for how you expect your same-store revenue growth, the trend throughout the year? I know you’re expecting 5% revenue growth overall and your comps get tougher as the year progresses. So how do you see it trending from the first half to the second half?

Paul Earle

Yeah. They’re really going to mimic in 2012 a lot like 2011 where we accelerated our revenue growth late in first quarter into the second quarter, into July, August and then flattened out third quarter to fourth quarter sequentially. So I think we’re going to see 2012 look a lot like 2011.

Nick Joseph – Citi

Okay. And then for the $100 million to $150 million of asset sales, that’s in your guidance. How much of that’s commercial versus multifamily? And I guess where are you in the process of selling these?

Reynolds Thompson

At this point, we are – all of that dispositions would be commercial property at this point. We’re placing our priority on the commercial dispositions and those will be the first thing that we work on. If there is an opportunity to do some multifamily, we will work on that, but we did not have any of that in our guidance.

Nick Joseph – Citi

Okay. And then I guess, switching gears a little, there’s been a lot of discussion about the housing markets starting to turn around. I was wondering if there is anything in your numbers or anything you’re hearing anecdotally that suggest that.

Tom Lowder

Well, as Reynolds mentioned in the prepared remarks, our move-outs to homebuyers is just slightly below our normal run rate of 15% to 17%, we’re at about 14.5% for the fourth quarter. We’re in the middle of a sweet spot, it takes three things to buy a home, it takes credit, cash and courage. And the credit market is not open for business for everybody, and a lot of people are still struggling with the full down payment that’s required.

And the courage part comes from when will the housing market truly bottom and when can you enter into the housing market and not be at risk of losing some equity. So in the near-term, meaning 2012, we don’t think the housing – move-outs will move up measurably. What that will look like in ‘13 or ‘14, I’m not sure, but we have no indications now in our portfolio that the current run rate will go above our long-term average of 15% to 17%. So it takes credit, cash and courage. And those three things don’t seem to come together for most of our renters.

Nick Joseph – Citi

All right. Great. Thanks, guys.

Tom Lowder

Thank you.

Operator

Thank you. The next question comes from the line of Derek Bower from UBS. Please proceed with your question.

Derek Bower – UBS

Hi. Good afternoon, guys.

Tom Lowder

Hi, Derek.

Derek Bower – UBS

I was hoping you could dig in a little bit to the underperformance in Dallas during the fourth quarter, it seems like not only did revenues slip below Europe portfolio, but occupancy seem to be main driver there. Can you just talk about trends in the Dallas portfolio, and maybe what renewals are doing in January and February?

Tom Lowder

Well, Dallas is really a tail of product type. If you’re urban in Dallas, you’re probably performing at the top level and as your work your way down the product quality scale, you’ll see performance drop-off. Our Colonial Grand and Class A properties have done very well in Dallas. We only have the one urban property Medical District, which is doing extremely well. But then as you work your way down to the portfolio came into the company, when we did the Cornerstone merger, the product that was suburban and built 85 to 87 we have some struggles there. So I think you’ll find that everybody in Dallas Fort Worth will dictate performance based on product quality and it’s Cs or the B minuses are under some pressure.

We are seeing a good traffic trends in Dallas Fort Worth, so that’s increasing through December and all the way into January, we’re seeing some really good traffic trends, so we’ll see if that materializes into increased occupancy in renewal rates.

Derek Bower – UBS

And so, I guess with the expectation that Bs will underperform As at least for the next year and the growing amount of supply concerns, I guess, are coming out next year or two, do you still see Dallas representing about 11% of your portfolio? Could we see that to be a smaller portion of your portfolio in the next year or two?

Tom Lowder

We’d like to recycle out of Dallas, Fort Worth on some of the older properties and also maybe recycle, we’ll have some assets in Charlotte, in Atlanta in the older portfolio. The one bright spot in Dallas, Fort Worth that I want to mention though on the renewal side for January, we’re up 5.5% on renewal leases. So we’re seeing a little bit of pickup in the market.

Reynolds Thompson

If they say – I think we also have the follow-up, too.

Derek Bower – UBS

Yeah, hi, guys. I’ve got two quick follow-up here. The first is, I think, Reynolds, you said that in the month of January renewals you were seeing up 6.9% month-to-date, did I catch that correctly?

Reynolds Thompson

Yes.

Derek Bower – UBS

What are you seeing on the letters that you’re sending out for February and March at this point?

Reynolds Thompson

We’re still in that 7% range. It’s right around there.

Derek Bower – UBS

Okay. The second question pertains to the litigation, that you’ve got going on. Can you tell us which – specifically it looks like in the 10-Q, you’ve got to three specific suits going on right now. Which one does the accrual pertain to?

Tom Lowder

It pertains to the – what’s described in the – our K is the UCO Litigation.

Derek Bower – UBS

And just relative to – if I think about each of those three is the UCO one that is worrisome or what should we expect as the year goes on in terms of this history?

Paul Earle

Well, the UCO cases are the oldest of the ones and it’s probably worked its way through the legal system further than the other ones at this point. It’s the only one that that we had some activity in with regard to the fourth quarter and that’s why we made the accrual. It’s – we got everything, we don’t expect the updates when we file our K next month, the change with regard to the other two cases at this point based on what we know. But when we had new activity in the UCO Litigation, which led us to believe that it was appropriate to make this accrual.

Derek Bower – UBS

Thanks, I appreciate it.

Tom Lowder

Yep.

Operator

Thank you. The next question comes from the line of Alex Goldfarb from Sandler O’Neill. Please proceed with your question.

Alexander Goldfarb – Sandler O’Neill

Hi. Good afternoon. Paul, just going back to your comments on Dallas, Atlanta was another market, which seemed to be bifurcated between outside the perimeter and inside the perimeter. Is that still the case or has anything changed in the Atlanta market?

Paul Earle

No, I think it’s clearly – urban properties are going very well and Class A properties are going to do very well. And if you go suburban and specifically Gwinnett County you’re going to see performance drop-off. We have some assets up in Gwinnett County that have really pulled down our Atlanta performance. So it’s not an Atlanta issue, it’s really major property and specific suburban locations and we would classify Gwinnett as the biggest challenge. So I would not paint a broad brush across Atlanta as a rule.

Alexander Goldfarb – Sandler O’Neill

Okay. And then, going to your guidance specifically the expense, I think it’s 2.5% to 3.5% is your expectation. How much is property tax playing a part of that? And as you think about what the assessors are doing. How active do you think they’ve been? And when do you think that you may see some potential meaningful increases portfolio wide.

Paul Earle

Well, Atlanta is playing a major role, I mean, (inaudible) playing major role in our expense guidance. We’re very fortunate this year, all multi-family owners are very fortunate this year across the markets with achieving successful tax appeals. We have in our budget a more normalized increase in taxes based on where we are in the cycle. We think the success that the whole industry achieved in 2011 may have been unusual and we may see it go back to more of a normalized increase in ‘12 reflected in our budget. But, yes, tax is our driving force behind our guidance.

Alexander Goldfarb – Sandler O’Neill

Okay. So, I guess –

Reynolds Thompson

This is Reynolds. Just to add, I mean, specifically we think taxes are going to rise by approximately 4%.

Alexander Goldfarb – Sandler O’Neill

Okay. So of the – so but if I go into your breakout and I have put through the page quickly, real estate taxes are only a portion of your – they’re only a portion of your expenses. So I’m just trying to understand how much of the 2.5% to 3.5% is purely driven by the 4% increase in real estate taxes?

Tom Lowder

Well, our second major component is in the utility line items. So we have two things going on there, water increases in 2011 we had significant water increases throughout the portfolio, water sewer, and also inside the utility line item is our cable contract, which you’ll find out in the case of the cable, the reimbursement is up on the revenue side. So there is some offset on the increased closer cable.

And then as you know, we have a self – part of our insurance program it contains a self-insurance pool. And so if we experience a run rate similar to 2011, we’ll have a return of premium that will end up helping us with our expense management. We had a really good run rate in 2011, we have losses and so we’re hoping for the same outcome in 2012.

Alexander Goldfarb – Sandler O’Neill

Okay. And just final, I think you’ve said that the rental home move-outs sequentially dipped from third quarter. So it sounds like maybe you had move-out that were just related to start of the school year. Is that the takeaway from that or how should we think about move-outs to rental homes versus just normal people who would move out to buy homes?

Tom Lowder

It’s really – we had about 4% of our move-outs related to home rentals. It’s in markets that would be surprising. In fact, let me just give you an example of some of the markets for move-outs, the home rental, it’s not which you would expect. Our largest market for move-outs the home rentals with Sarasota, the second largest market was Huntsville, third largest Austin. Phoenix has been talked about a great deal over the last couple of years, only 4% of our move-outs to Phoenix to rental – home rentals were in Phoenix. Orlando only 2.4%, Charlotte 2.1%. So five years ago, move-outs to home rental was not even measured, it’s less than 1%. Now it consistently stays between 3.5% and 4% and so I don’t see that moving drastically at all.

Alexander Goldfarb – Sandler O’Neill

Thank you.

Paul Earle

Thank you.

Operator

Thank you. The next question comes from the line of Michael Salinsky from RBC Capital Markets. Please proceed.

Michael Salinsky – RBC Capital Markets

Good afternoon, gentlemen. First question, just let me go back to the dividend increase. Just as you think about where you are in the process, cleaning up the balance sheet, winding down some of the commercial stuff, still waiting for the debt upgrade. I just wanted to understand the thinking on that ahead of the increase kind of what the Board’s kind of plan was there.

Paul Earle

Well, you know the history of the company. The shareholders took significant dividend cuts over the time and part of our three-year plan was to get the balance sheet back in shape is that if we earned our investment grade rating, you know we’re on the cusp of doing that. And we think the balanced approach was to give our shareholders some yield and so the $0.325 increase what’s available to us in our AFFO and FFO. So we decided to reward the shareholders with some additional yield.

Michael Salinsky – RBC Capital Markets

Okay. Fair enough. Can you give us an update on Ravinia? You talked about primarily being commercial asset sales, if not revenue. Can you give us a sense of what else you’re going to sell in 2012 be it more joint ventures, or you’re looking to harbor some of the on balance sheet commercial assets.

Reynolds Thompson

Mike, this is Reynolds. Yeah, our strategy is to continue to focus on commercial asset sales. I think the retail assets are in better positions to be sold right now than the office assets, Ravinia is well occupied, but we do have some near-term lease exposure, which we would like to get addressed. And if we’re able to do that and lengthen out some lease terms, we would probably put that building a position to be marketed. It’s over – it’s close to 95% occupied today. And that’s clearly when we’d like to get out there, but we’ve got a little work to do on the tendency before we get that one out there.

Michael Salinsky – RBC Capital Markets

So in that $100 million to $150 million, Ravinia is not part of that, correct?

Reynolds Thompson

That is not part of that number.

Michael Salinsky – RBC Capital Markets

Okay. And you’ve not built it doesn’t sound like you build in any additional multifamily recycling into that. So anything on that side would be potentially diluted to earnings to the guidance provided rather. Correct?

Reynolds Thompson

Obviously depend on what we reinvested in. Yes.

Michael Salinsky – RBC Capital Markets

Okay. That’s helpful. Can you touch a little bit upon the 15% increase in G&A for 2012 that you are forecasting at the midpoint.

Reynolds Thompson

Yes. I’ll take the first part of this and I’ll let Tom circle back around. It’s – we’ve got two things going on. The first is, we made a change to the company’s vacation policy in 2011, which – where we had, we had a policy that allowed people to carry over vacation. And so we had build up crude vacation on the balance sheet over the years.

And we changed to a policy that says you had to use all that vacation in the calendar year that you having. And it allowed us to unwind that accrual in 2011, which was worth about $1 million to us. So as you compare ‘11 to ‘12, we had a credit if you will on ‘11 for $1 million that we were not getting in 2012, that’s created part of the $3 million various kind of going from midpoint, our guidance rate in fact where we ended this year. The second part has to do with incentives and I’ll let Tom talk to you about that.

Tom Lowder

Yeah. When we set up our three-year plan, three years ago, we were done with this, when we put together our plans, I look back at the past that perhaps some mistakes that the company had made over the years involving where our incentives were, where our risk were and the board helped me put together and incentive plan that land all of our employees with the shareholders. If the shareholders win, the employees win.

And so what you are saying is the success that we’ve had over that three-year period and I’m proud to say, I’m not proud of where we started from, but I’m proud of where we have gotten to over that three years that – over the three year period and against our multifamily peers, we have performed 100%. And accordingly, each year as we award our incentives over the last three years, we have earned as you can tell from the last 10-Q – 10-Ks have been filed that we’ve been awarded good incentive.

Those incentives are primarily paid in restricted stock, some options, but primarily restricted stock. And those restricted stocks that have been awarded vest over a five-year period, the options over a three-year period. So what you’re seeing is the third year of a stacking, if you will, of those awards, which has put an additional $2 million increase into our G&A and as those awards are vesting.

And so I would anticipate in 2013 that this level off, both we’ve had a pretty clime over the last three years and that stacking phenomena over the three-year period will just level out. But I’m happy to say that we’ve aligned, particularly, senior management with shareholders and we’ve had good performance and we’ve been awarded for work and that has put other two penny increase that Reynolds has just explained the $3 millions or three pennies, two of the three are related to this incentive pay.

Michael Salinsky – RBC Capital Markets

That’s helpful. And final question, you talked about a commencement in the first quarter in Charlotte, how many developed – where is the total number of development starts you guys were expecting for 2012 kind of built into that guidance.

Tom Lowder

We’ve projected development spending will allow us to start as many as three or four additional multifamily projects this year. We’re cognizant of the building development pipelines across the country and we have had an objective of getting the inventory on our balance sheet into productions. We’ve been fortunate that the markets have recovered enough to allow us to take advantage of that and we want to make sure we’re in front of that curve and get our projects up in leased before we have to compete with some of the other supply that may be coming later on.

Michael Salinsky – RBC Capital Markets

Okay. That’s all from me, guys. Thanks.

Operator

Thank you. The next question comes from the line of Andrew McCulloch from Green Street Advisors. Please proceed.

Andrew McCulloch – Green Street Advisors

Hi. Good afternoon. It doesn’t look like you guys have too much in the way of land sales heat up for ‘12. Can you talk a little bit about the market for land right now and maybe what that potential buyer looks like?

Reynolds Thompson

Land sales. We’ve had some good success here in our out process sales, last year we did about $4.5 million in our guidance we’re going to continue that same performance in $4 million and $5 million in sales, other sales were condo sales. And we’ve got 13 condos left in Charlotte and in our guidance, we are burning through about half of that. But our goal will be to sell all of those this year, but in our guidance we’re (inaudible) and I think the numbers.

Paul Earle

$3.8 million.

Tom Lowder

Around $4 million.

Andrew McCulloch – Green Street Advisors

Any uptick in demand from the homebuilders looking at that land?

Paul Earle

We’re not seeing it yet out there at all. We’re –

Tom Lowder

I think the homebuilders are still taking advantage of the REOs from the banks at substantial discounts. So that’s in the markets, that’s where we’re seeing most today growing.

Andrew McCulloch – Green Street Advisors

Okay. Then circling back to the litigation question, can you comment on what’s going on in Jefferson County with your (inaudible) project and if you on plan on taking a reserve at some point for that?

Tom Lowder

Yes. The county has indicated that they would like to reject some of the tip or incentives that they put out there for various developments. We have been very proactive and are working on a solution to get around that and work with the county to come up with something that works for them and ourselves. And we’ve teamed up with others that are in the same position to have those discussions. Hopefully, we will be successful with that.

If we are not ultimately successful, that – the money that we don’t recover would end up in our bases in the property. So it’s really not a reserve question. It’s fled – what would our ultimate yield on the asset be, if we’re not able to get the original incentives that we thought we were going to be able to get. So it’s something that we’re going to continue to work through and if we’re successful with the plan that we’re working on today, that would be a very good solution for us and we think that something we have a good opportunity to get done.

Andrew McCulloch – Green Street Advisors

Okay. Thanks. And just two quick questions on development. On your expected development spend for ‘12, any portion of that spend retail?

Tom Lowder

Yes. We’ve got a couple of retail projects, (inaudible) that we continue to develop additional phases, its tenets are broad off to the table and then we’ve got a small project in Huntsville, Alabama that’s anchored by Wal-Mart that will also be spending some dollars on this year.

Andrew McCulloch – Green Street Advisors

Can you quantify that what portion of the total spend is retail?

Tom Lowder

It’s going to be between $10 million and $20 million.

Andrew McCulloch – Green Street Advisors

Okay. Great. And then, just on the double Creek asset, it looks like you pushed the stabilization date back two quarters, can you talk about what happened there?

Tom Lowder

It took us two additional months to get our building permits. I think the city was a little rusty in the effort and I guess we were a little rusty and it just took a couple of months to work through the building permit process, but we’re well underway now in full development.

Andrew McCulloch – Green Street Advisors

Okay. Great. Thanks, guys.

Paul Earle

Thank you.

Operator

Thank you. The next question comes from the line of Rich Anderson from BMO Capital Markets. Please proceed with your question.

Richard Anderson – BMO Capital Markets

Hi. Good afternoon, everyone.

Tom Lowder

Hello, Rich.

Reynolds Thompson

Hello.

Richard Anderson – BMO Capital Markets

Yeah, hi. So how many vacation weeks do you all get since you have to take them all this year, right?

Tom Lowder

There were a few people that had to burn all some extra vacation days or lose them this year.

Paul Earle

Yeah. They were not on this call though.

Tom Lowder

Yeah, they were not.

Richard Anderson – BMO Capital Markets

Well, how many do you get, do you get four weeks, three weeks what is it?

Tom Lowder

It depends on how long you’ve been here. It starts at two and goes up to 4 to 10 year.

Richard Anderson – BMO Capital Markets

Okay. Okay. So I just want to make sure you guys are going to be in the office most of the year.

Tom Lowder

Absolutely.

Richard Anderson – BMO Capital Markets

Tom, you said you expected home ownership to stabilize in 2012, assuming that that is a different view than what you might have said a year ago, what was it a year ago? What did you think? Did you think it would go down to 60%, or I mean, the home ownership rate, how did that change and if by virtue of the change, how are you still able to have a really good great year in 2012 even though the home ownership rate might stabilize?

Tom Lowder

Well, I think Paul gave you some stats on what percentage of our move-out or the percentage of our turnover going both to home rentals and to home sales. And from our history, they got as high as 38% which was phenomenal. We saw residency, we couldn’t qualify for apartments span in homes. That should have given us a tip right there.

Richard Anderson – BMO Capital Markets

Well, I guess if I may interrupt, I mean, I’m asking kind of what is the homeownership rate that you’re expecting to stabilize that during 2012?

Tom Lowder

I think Paul answered to your question or attempted to answer your question. It’s in our guidance where you anticipate that number being around 16%, 17% which is a normalized rate that we’ve seen in the past, we’re not – it’s been as low as 11% last couple of years and it’s moved up.

Richard Anderson – BMO Capital Markets

Okay. So the home ownership rate is 65 and change percent in the country.

Tom Lowder

Yeah.

Richard Anderson – BMO Capital Markets

And so I’m asking what do you think the home ownership rate stabilizes at in 2012?

Tom Lowder

I think about 16%.

Richard Anderson – BMO Capital Markets

Maybe I’ll take that question off-line.

Tom Lowder

Well, I’m not an economist, but I’d be willing to take a bath that it’s going to be somewhere around 65, 66. I think we’ll see.

Richard Anderson – BMO Capital Markets

Okay.

Tom Lowder

. . . Some additional activity. My twin brother is a home builder in a small market here in Montgomery and his home sales have been relatively flat over the last two years, but I would anticipate it would be up slightly this year.

Richard Anderson – BMO Capital Markets

Okay. On the topic of the 90:10 split, 90% multifamily being target. I guess, I’m curious why – what is so special about that 10% stub of commercial? Is there a reason why you have to have it because of some business lock-ups or something like that, because I don’t know how 10% commercial exposure really would come to the rescue at all if you were looking for a diversification. So can you tell me why you wouldn’t just go 100% multifamily?

Tom Lowder

Sure. In an ideal situation, it would be a 100%.

Richard Anderson – BMO Capital Markets

Okay.

Tom Lowder

But from where we come from and to be realistic within a three-year business plan and a five-year strategy, we believe that we could achieve 90%. There is nothing to keep us from going to 100% and part of that percentage, as you know, are joint ventures partnerships that have a life wanted to tickle with DRA where refinancing doesn’t come due until 2014. So that’s a percentage factor there and so we were just trying to be realistic that a 100% less than a number we were going to get to, but 90% was a practical and achievable number that we could set a realistic goal to.

Richard Anderson – BMO Capital Markets

Okay, that’s fair. Next, a quick question. To use a baseball analogy, where do you think we are innings wise in this cycle, this positive cycle for multifamily? If we kind of started on a positive path in the second half of 2009, and you said supply maybe comes and disrupts the picture in 2014, maybe the housing market picks up and disrupts demand a little bit as well for multifamily. Would it be fair to say that we’re kind of in the sixth to seventh inning of this positive run in multifamily or do you think it will be sooner or later or earlier than that?

Paul Earle

I think it’s moving faster than we anticipated it being (inaudible) it feels like we’re in the fifth innings.

Richard Anderson – BMO Capital Markets

Fifth innings. Okay. And what’s the score? Forget it, you don’t answer it. And then the last question is on the rating or the investment grade rating effort. Is it tougher since you had, you are a company that lost your ratings, so it’s tougher to get it back. I’m curious at this point you would have had a rating, had it not be for the fact that you lost it in 2009, I believe, it was. So are you up against a higher hurdle to get it back?

Paul Earle

Yes. It’s always harder to earn your reputation back once you lost it. So we have to hire standard and that’s appropriate and we accept that and we’re – but we’re still going to achieve it.

Richard Anderson – BMO Capital Markets

So you’re an investment grade rated company apples-to-apples with others except for the fact that you lost it in the past in terms of your credentials right now?

Paul Earle

We believe so.

Richard Anderson – BMO Capital Markets

Okay. Thank you very much.

Operator

Thank you. The next question comes from the line of Taylor Schimkat from KBW. Please proceed with your question.

Taylor Schimkat – KBW

Hey, good afternoon, guys.

Reynolds Thompson

Good afternoon.

Taylor Schimkat – KBW

Just a question on acquisitions. Which market do you like for 2012 and should we expect those acquisitions to be more weighted towards Colonial Grand suburban product or the reserve infill type product?

Tom Lowder

Colonial Grand and Colonial Reserve and the Reserve is probably our first choice and we still like to go to the markets where we’ve not seen the rents fully recover. So Phoenix is still substantially below peak rents, Tampa and Orlando are below peak rents. So those are three examples, but Medical District in Dallas the urban product that a lot of you saw was an example of what we like to do going forward.

Taylor Schimkat – KBW

So then as fast as development starts, can we expect your development starts to be in – I know you’ve got some land in Phoenix and some of those other markets. Are those targeted for developments in 2012 (inaudible) starts?

Paul Earle

Yeah. We’re going to be working more in the – on the East Coast. I mean, we’ve got additional sites in Orlando, we mentioned Charlotte. We also have some opportunities for some Phase 2s, some projects that are in markets that are performing very well. The step-out west is going to be later in the cycle, but it’s coming faster than we would have anticipated, we were talking to you this time last year.

Tom Lowder

Yeah. I would say from some of the acquisitions we’ve looked at in the markets outlast that Reynolds referred to that. Certainly the asking prices are in excess of replacement cost. And so when you get that signal, that’s going to kick off additional development.

Taylor Schimkat – KBW

Okay. And then with the acquisitions and dispositions expected to be roughly balanced and obviously sales more on the commercial side acquisitions on the multifamily side. What sort of cap rates that are you expecting between the acquisitions and dispositions?

Tom Lowder

Yeah. We’ve been – the multifamily assets that we’ve been buying have been in the mid-fives and I would anticipate that that cap rate range would be pretty similar to urban products a little more aggressive than that, the suburban products a little higher than that. But I think we’ll be in that same range. On the disposition side, the two retail projects that we sold recently, we’re in the mid-7% range. And I think we’re between – that number in something closer to eight depending what asset there is out there.

Taylor Schimkat – KBW

Okay. Okay. And then lastly, do you have an ATM equity vehicle in place today?

Tom Lowder

We do not.

Taylor Schimkat – KBW

Okay. Is there a plan to put another one in place in the near-term?

Tom Lowder

Not at this point.

Taylor Schimkat – KBW

Okay. Great. Thanks so much, guys.

Operator

Thank you. The next question is a follow-up from the line of Derek Bower from UBS. Please proceed with your question.

Unidentified Analyst

Hey, guys, it’s (inaudible) again. Reynolds, I wanted to circle back. I thought you had said at the opening, the new lease rates went up 0.7% in the fourth quarter. Was that the right number?

Reynolds Thompson

Yes, that’s the right number.

Unidentified Analyst

Okay. But if I go back to the third quarter call, which was back in October and I’m reading from the transcript, there was an expectation that the new lease rate was going to be up 4% to 5% for the first quarter, for the fourth quarter rather. So that would imply that in November and December, you guys pulled back on that new lease rate. Is that right?

Reynolds Thompson

You’ve got it exactly right. We were surprised to tell little traction we got out of the new lease rates in the fourth quarter. We thought they would –

Unidentified Analyst

Were you seeing the occupancy –

Reynolds Thompson

We thought they would hold up better.

Unidentified Analyst

And so you’re saying that the occupancies started to ease off a bit?

Reynolds Thompson

I don’t know if it’s – yeah, it’s all – it’s a combination of a lot of things and it appears to have a lot to do with traffic. And yeah, we’re still learning how to interpret what LRO is telling us and it’s a great system that we really like, but we’re continuing to learn and win traffic dips, it shows up in your ability to push those new lease rates.

Unidentified Analyst

Right now I’m literally scratching my head because I thought I heard the traffic was up 10% in the fourth quarter, yet in November and December you guys then pulled back on the new lease rent growth, so those two statements kind of confuse me?

Reynolds Thompson

The primary driver behind our pricing strategy with LRO is we’re up against all the private companies and all the local operators that are pricing based upon decisions that are not sophisticated. The REIT universe has moved to a professional pricing model, but a lot of the product that we price against is still the old-fashion way and a lot of owners make adjustments in the fall in winter and unfortunately we have to be sensitive to that and we were hoping that rents would hold up on new lease rates.

Now the volume of leases that we generate in the fourth quarter are substantially less than in the spring and summer. So it does not have a huge consequence to our optimistic view of how ‘12 will play out, but the whole universe is not on the two pricing models, it’s basically the public company format that is using the systems and we’re all pricing against the private guys that are not quite as – they were not quite as bullish as they should have been in the winter and going into December and holiday season, so –

Tom Lowder

The traffic was up just to Charlotte traffic –

Reynolds Thompson

but the absolute number of traffic coming through the door is down. So it’s better than it was a year ago, but we don’t have as much volume in traffic as we do in the third quarter. That’s –

Unidentified Analyst

Oh, that’s yeah, yes, understood.

Reynolds Thompson

I think, the better measure, a very good measure is how successful are all of the companies are in the renewal rates, that’s another very good benchmark and then how our company is going to perform as they go into the spring. And so I wouldn’t read much into Thanksgiving to Christmas, new lease rates. I would be very aware of how all the companies are doing with renewal rates and then how do we all accelerate as we go into the leasing season and then from that determine how the business is performing.

Unidentified Analyst

I appreciate all. Thank you.

Reynolds Thompson

All right.

Operator

Thank you. The next question comes from the line of (inaudible) from Citi. Please proceed.

Unidentified Analyst

It’s actually (inaudible). I Just had a couple of follow-up questions. Just thinking about sort of total company seems to NOI or sort of company NOI growth. What are you forecasting for the commercial assets, it’s about 15% of NOI today on a company basis fully consolidated. What’s your expectation?

Tom Lowder

Just a second, we need to pull that one up.

Unidentified Analyst

Well, as you’re pulling that one up, maybe I’ll ask another one sort of tightened to it a little bit. But just thinking about the acquisitions and dispositions where you’re going to be selling the commercial buying residential. And we’re just thinking about the timing of that execution. You’ve already purchased the asset Rowley. So you are already $50 million – almost $50 million towards the acquisition guidance. How should we think about the timing of execution for the balance of the acquisitions and then as we think about the dispositions for the year?

Reynolds Thompson

Well acquisitions, we still have additional proceeds that we need to execute on from the sharp incentive selling notch for –

Tom Lowder

So really, late second quarter and then mid-third quarter is how our plans is spelled out.

Reynolds Thompson

As far as the dispositions on the commercial side, there are numbers in the third quarter.

Unidentified Analyst

So the sales are.

Reynolds Thompson

That we confused or maybe we’re confused.

Unidentified Analyst

Yeah just on the 2012 acquisition and dispositions, right, you’re forecasting $100 million to $150 million of acquisitions, $100 million to $150 million of dispositions in terms – we’ve already completed $45 million of acquisitions. As we think about your guidance and obviously there is going to be some dilutive impact that you’re acquiring assets at lower cap rates in your borrowings, but they have better growth profile and you should –

Tom Lowder

Most of those acquisitions take place in the end of the second quarter and the dispositions on the commercial side into third quarter. Yes.

Unidentified Analyst

Okay. And then, as we think about that $100 million to $150 million of commercial dispositions, what sort of the growth asset base, because I assume you are selling some out of the joint ventures. But how should we think about sort of growth asset value in terms of what you’re trying to dispose off.

Tom Lowder

You mean, if you added in the value of the JV?

Unidentified Analyst

Yes. They’ve seemed $100 million to $150 million as your share and I don’t know if that represents $300 million of growth sales of which your share is $100 million to $150 million?

Tom Lowder

I’m not quite sure how to answer that without –

Unidentified Analyst

There is bulging which as you’re selling.

Reynolds Thompson

Yes.

Tom Lowder

It is a mix.

Reynolds Thompson

You got it. You might didn’t know, I don’t know how to give any more details in that right without getting further out there, we are comfortable there.

Unidentified Analyst

That’s fine, but it sounds like those are, you have that stuff on the market, you are well down the road in terms of executing on the disposition plan?

Tom Lowder

We feel good about being able to get some of the dispositions going, yes.

Unidentified Analyst

And then do you have the NOI forecast for commercial?

Tom Lowder

Yes on the office side, our NOIs are going to be relatively flat on the retail side down slightly.

Unidentified Analyst

Okay. And then, as you think about, I mean, just going to Reynolds this question about the new leases. I guess when you strip it down just it seems to our revenue or seems to our NOI performance, it basically came in, in line to a head in the fourth quarter where you thought you would be?

Tom Lowder

Yes. Yeah.

Unidentified Analyst

Right. So I mean, all certainly done, well you got there from renewals occupancy in new leases. The combination of everything you are in line to ahead of plan.

Tom Lowder

Absolutely.

Reynolds Thompson

Yes.

Unidentified Analyst

Okay. Based on, I get sense that you’re altering at all relative to where you think you’re doing?

Reynolds Thompson

Absolutely not, we feel very good about how we’re going into 2012, and how we ended 2011.

Unidentified Analyst

And just coming finally, some of the balance sheet, as you think about moving towards this investment grade rating. Is there any of the debt as you think about, what’s coming due in ‘12, ‘13, and then ‘14, I know as the DRA venture debt. Is any of that pre-payable at all without significant charges, so that you can reduce that secured debt level even further and obviously just given the fact that the rates that are expiring the next few years are north of 6%, and you get a nice refinancing tailwind on earnings if you are able to repay that?

Reynolds Thompson

They are not repayable without some penalties debts.

Unidentified Analyst

So nothing of that is. . .

Reynolds Thompson

Unfortunately nothing.

Unidentified Analyst

Okay. And when does it, when did you. . .

Reynolds Thompson

We have a nice time to borrow some more money, but we don’t really need that.

Unidentified Analyst

Right. And when does the 2012 maturities, $100 million income due this year?

Reynolds Thompson

It is in August of this year.

Unidentified Analyst

And that’s secured or unsecured?

Reynolds Thompson

Unsecured.

Unidentified Analyst

Okay.

Reynolds Thompson

All right. Thank you very much.

Operator

Thank you. Thank you ladies and gentlemen. (Operator Instructions) The next question comes from the line of Alex Goldfarb from Sandler O’Neill. Please proceed.

Alexander Goldfarb – Sandler O’Neill

Hi. Thank you for taking the follow-up. Just going back to the holiday new lease slowdown. What are your private peers doing now are they back to pushing rent, now that they are back from the holidays, and just want to get a little more color there?

Reynolds Thompson

Yes, The by the peers saw our tending moving, so these are leases that are signed, that are not moving on the ramp roll are all positives so our future view from here looks a lot like last year. So all sign leases pending move-in are now positive.

Alexander Goldfarb – Sandler O’Neill

Okay. So if you guys are putting together your ‘12 guidance, did you in anyway adjust it based on what happened at year-end, where your private competitors suddenly really dialed at?

Reynolds Thompson

No, we finished ahead a plan in December. We are coming out of the date very strong. No we haven’t adjusted anything.

Alexander Goldfarb – Sandler O’Neill

Okay. Thank you.

Operator

Thank you. The next question comes from the line of Michael Aryan from Sun Life Financial. Please proceed.

Michael Aryan – Sun Life Financial

Hey, guys. Just a question regarding again kind of ratings and I know there was a question earlier about when you thought it, a key investment grade rating that you felt that you already there. But I mean, to me is that I look at your debt matter it’s going to be leveraged in terms of debt EBITDA versus other multifamily peers. Your are still little behind them, I’m wondering, is that debt-to-EBITDA that you have and how soon do you think you will be able to achieve that if you do have that?

Reynolds Thompson

We have discussed a couple of targets in the past that we’ve been working on with guidance from the rating agencies. They are in that particular order, a fixed charge covered ratio of greater than two. Debt plus preferred number of 45, less than 45 and the debt-to-EBITDA number of eight times or better. And we are right on top, we exceeded our fixed charge coverage number, we are right on top of the leverage number and we’re working our way toward the eight times on debt-to-EBITDA.

So we think we’re closing in on it. Our particular situations one where, it’s the right time to put some capital into development, it does put some pressure on those numbers because we don’t get any income while we’re spending some of that capital. So it’s – we are at a difficult point in cycle but is very easy to see that what the outcome is going to be and we like where we’re headed once these developments starts to come online.

Michael Aryan – Sun Life Financial

Okay. So likely and maybe I’m doing my calculations wrong, but they have you guys at about eight times debt-to-EBITDA now, is that right or what are your actual. . .

Reynolds Thompson

We’re close. We ended the year at 8.15.

Michael Aryan – Sun Life Financial

Okay.

Paul Earle

(inaudible) over the preferred and we –

Michael Aryan – Sun Life Financial

Okay. All right. So well all things being equal, do you have a same year, this year that had last year, a lot of other stuff going on, but you probably should be able to get below eight times, right next time like into the review rating.

Reynolds Thompson

We think, we’re going to be in the right position next time we get to talk this.

Michael Aryan – Sun Life Financial

Okay. All right. Thanks.

Tom Lowder

Thank you.

Operator

Thank you. It appears at this time that there are no further questions. Mr. Brewer, I’ll turn the conference back over to you.

Jerry Brewer

Thank you all for joining us today. We look forward to talking to you soon. Have a great day.

Operator

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect you lines. Thank you and have a good day.

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